The extent of the increase in aggregate demand when government spending is raised mostly depends on "<u>the size of the multiplier</u>."
<h3>What is the multiplier?</h3>
Any government's increase in expenditure has an expansionary impact on the economy since it raises aggregate demand.
The following expression provides the fiscal multiplier:
1) M = 1 / (1-MPC)
MPC stands for marginal propensity to consume, and M is the multiplier in this equation. The MPC is the percentage that each consumer would spend (consuming) if each person's income grew by $1.
As an illustration, if MPC=0.8, the consumer will spend 80 cents and save 20 cents when given an extra dollar.
According to this MPC, when the government increases expenditure, some of the additional funds will be spent and some would be saved.
The portion that consumers spend makes up the income of other economic agents, who spend a portion and save the remainder in accordance with their MPC.
The multiplier effects last until the initial income rise has been multiplied by 1/1-MPC, at which point they cease to exist.
As a result, total aggregate demand will grow by 1/1-0.8=5 if MPC=0.8 and government spending increases by $1. (five times).
As a result, the fiscal multiplier has a major impact on the overall growth in aggregate demand.
Check out the link below to learn more about fiscal multiplier;
brainly.com/question/13085024
#SPJ4